Information Memos

AMENDMENTS TO RULES 70.26 (PEGGING FOR D-QUOTES AND E-QUOTES) AND 72 (PRIORITY OF BIDS AND OFFERS AND ALLOCATION OF EXECUTIONS)

Purpose

This Information Memo informs New York Stock Exchange LLC (“NYSE”) and NYSE Amex Equities LLC (“NYSE Amex Equities”) (collectively, the “Exchange”) members and member organizations of recent amendments to Rules 70.26 and 72 relating to pegging orders.

These rule changes require certain operational and system changes to the pegging order functionality. For a description of these changes and the implementation schedule, see NYSE Trader, Enhancement to Pegging Orders, dated January 13, 2012, available at HYPERLINK "http://traderupdates.nyse.com/2012/01/enhancement_to_pegging_orders.html" http://traderupdates.nyse.com/2012/01/enhancement_to_pegging_orders.html.

Prior to the recent amendments, Rule 70.26 (Pegging for d-Quotes and e-Quotes) provided that an e-Quote may be set to provide that it will be available for execution at the national best bid (“NBB”) or at the national best offer (“NBO”) as the national best bid or offer (“NBBO”) changes, so long as the NBBO is at or within the e-Quote’s limit price. Rule 70.26 also provided that, as long as the NBB or NBO is within the pegging price range selected by the Floor broker, the pegging e-Quote or d-Quote will join the NBB or NBO as it is autoquoted. As such, pegging interest may peg to a price that may not be displayed at the Exchange. For example, if the NBB is $10.05 and the Exchange best bid is $10.04, a pegging e-Quote to buy will display at the Exchange at $10.05, thus creating a new Exchange best bid.

The Exchange has amended Rule 70.26 to:

provide that a pegging e-Quote or d-Quote to buy (sell) will not peg to an NBB (NBO) that is locking or crossing the Exchange best offer (bid), but shall instead join the next available best-priced non-pegging interest that does not lock or cross the Exchange best offer (bid);

provide that if the NBB (NBO) is not within the pegging price range selected by the Floor broker, then a pegging e-Quote or d-Quote to buy (sell) will join the next available best-priced non-pegging interest that is within the price range selected by the Floor broker;

remove the ability of Floor brokers to specify a maximum size validation for e-Quotes and d-Quotes;

specify that the non-pegging interest to which a pegging e-Quote may peg may be available on the Exchange or may be a protected bid or offer on an away market; and

delete the last sentence of paragraph (xiii) to Rule 70.26.

Description of Changes to Rule 72

Under Rule 72(a)(ii), a bid/offer is considered the “setting interest” when it is established as the only displayable bid/offer at a particular price and is the only displayable interest when such price is or becomes the Exchange best bid or offer (“BBO”). A bid/offer considered setting interest is entitled to priority for allocation of executions at that price. Under NYSE Rule 72(a)(ii)(G), if non-pegging interest is the setting interest, it retains its priority even if joined at that price by a pegging e-Quote. However, if at the time non-pegging interest becomes the Exchange BBO, an e-Quote is pegging to such non-pegging interest, all such interest is considered to be entered simultaneously and, therefore, no interest is considered the setting interest.

The Exchange has amended Rule 72(a)(ii)(G) to reflect that non-pegging interest that becomes the Exchange BBO will be considered the setting interest even if an e-Quote is pegging to such non-pegging interest.